Competition keeps Baltimore County gas stations nimble

When it comes to filling up his GMC SUV, every penny counts for Frank Beales, a retired corrections officer from Violetville. He stopped at the U.S. Gas in Halethorpe earlier this month after seeing the street sign advertising $2.19 for a gallon of regular.

"It's the price," said Beales, 66. "I'm sure I'm not the only one who does that."

The fuel industry is unique in that the prices of its products are posted on the street, allowing customers to make a buying decision before they enter a station's parking lot, said Kirk McCauley, director of member relations and government affairs for Washington, Maryland, Delaware Service Station and Automotive Repair Association, an industry trade group.

"The state of the industry right now is price rules the street," he said. "It naturally keeps the profits low at each station, especially in the Baltimore and Baltimore County area."

With razor-thin profit margins and intense competition, service stations have to do more than selling fuel.

McCauley said "gas and go" stations are no longer being built because "there's no money in gasoline." Newer stations tend to be built on larger footprints — 2 to 2.5 acres — and have more gas pumps and amenities, such as convenience stores or car washes.

"You need those inside sales, whether it be working on a car or convenience stores, to make it," he said.

Ehsan Anjum owns U.S. Gas stations in Halethorpe, Lansdowne and Baltimore City. His two Baltimore County locations have about $3 million each in annual revenue, and he reaps $40,000 to $50,000 in profits from each. He's been involved in the industry since 1994.

Speaking from his Halethorpe station, which he has owned since 2013, Anjum said the business has gotten more competitive, thanks to larger companies establishing a local presence. The station, on the corner of Washington Boulevard and Caton Avenue, has eight fuel pumps and a KwikEMart convenience store.

"It's hard to compete," said Anjum, 68. "We don't have another option. We've been in the business. We can't jump into another business and start again."

While 80 percent of his sales are from gas, after considering expenses, he makes about 7 cents per gallon of gas sold. It's lottery games that has kept his business afloat in recent years, he said.

"If I don't have the lottery, I am out of business," he said.

Gas prices on Aug. 23 were $2.199 per gallon for credit and $2.159 for cash. The average credit card price in Halethorpe, according to AAA, was $2.286. Keeping prices low brings customers inside the convenience store, he said. (Prices have spiked in the area after a hurricane raked Gulf Coast refineries, which had been shut down as the storm advanced last week)

It's also something he has to do because of the competition nearby. A Wawa and two Royal Farms convenience stores on the same street within 1.6 miles from his location are selling at the same price.

After the Wawa on Washington Boulevard opened in November 2014, the monthly volume of gas sold at U.S. Gas was cut in half, to about 75,000 gallons, Anjum said.

"They're dragging us," he said. "We don't have a choice."

Anjum hopes to sell his gas stations and retire in the next two years. With the increased popularity of hybrid and electric cars and bigger brand names entering the market, he's not optimistic about the future.

"The gas station business is going down and down every year," he said.

McCauley said because of the small profits that gas stations provide, it's becoming rarer to find a gas station owner who owns just one. He said owners typically have multiple stations in their portfolios.

Prices at each location can vary because each station can have a different financial situation, including whether it rents or pays a mortgage or how it acquires its fuel. Some businesses take a loss on gas to entice customers to patronize the more profitable repair bays or convenience stores, McCauley said.

Fuel prices change in response to oil trading, said Christine Delise, a spokeswoman for AAA Mid-Atlantic. This summer was a bit of an anomaly, as prices declined heading into Memorial Day and continued to trend downward until July. Normally, prices are on the rise, she said.

"The demand wasn't there for gasoline and the output, in terms of oil and gasoline was strong," she said. "So that helped to keep prices in check."

Average gas prices in southwest Baltimore County are 15 cents to 20 cents higher than at this time last year because oil prices were lower.

There is typically a downward trend heading into Labor Day weekend, as students go back to school, Delise said, but with the first day of school in Maryland after Labor Day this year, there's uncertainty over whether prices will drop or remain steady.

"That remains to be seen," she said.

Once schools start and adults head back to work from vacations, gas prices usually decrease through the rest of the year, Delise said.

Weather also plays a factor at this time of year, Delise said. If hurricanes damage oil and gas refineries in the Gulf of Mexico, that will impact gas supply, and in turn, prices rise.

Riaz Ahmad, 57, entered the fuel business in 1993 and joined two friends to create NSR Petro Services in 2000. The Greenbelt-based company now owns about 30 stations in Maryland, Virginia and Washington, including three in Baltimore County. In addition to Catonsville, the company has locations in Essex and Windsor Mill.

The Catonsville station is a BP in the 5600 block of Baltimore National Pike, less than a mile east of the Baltimore Beltway.

For Ahmad's company, no location is the same, he said. Many have car washes, if there is enough space, and convenience stores, which range from 900 to 5000 square feet.

On the one-acre Route 40 property, the BP has 12 pumps, a 2,000-square-foot convenience store, a lounge for the Keno lottery game and a car wash, which offers services that range from $10 to $12.

When he started in the fuel service business, convenience stores were starting to become trendy, but the main focus outside of gas was auto repair, he said. The Route 40 shop had three service bays.

Times changed when businesses such as Royal Farms, 7-Eleven, Wawa and Sheetz introduced larger convenience stores to the market. In their business model, they are able to sell gas at a lower cost to draw people into their stores, which sell more profitable goods and services, McCauley said.

With warehouse stores such as BJ's Wholesale Club, Costco or Sam's Club selling gas at or below to the retail market price, it is tougher for traditional fuel service businesses to compete, Ahmad said.

Ahmad said fuel stations need to continue to innovate to stay in business. At the Route 40 BP, he converted dormant repair bays into a Keno lounge two years ago.

The lounge is a separate room, about 500 square feet with a separate entrance, where customers can purchase Maryland Lottery tickets and sit at tables to watch results of Keno games.

Ahmad keeps 5.5 percent of the revenue generated from the Keno lounge..

The Keno lounge is now the gas station's largest source of revenue, bringing in $300,000 and $400,000 a month, followed by fuel, convenience store sales and the car wash, with about $4,000 to $5,000 per month in revenue.

Ahmad said the Route 40 gas station generates $7 million to $8 million in annual revenue, but he's happy if he sees 10 percent of that in income.

Ahmad typically sells his fuel at about 10 cents more than the wholesale market cost, which gives him income to pay bills, salaries for his staff of 12 and credit card fees. The credit card fees are 3 percent of sales.

His main competition, he said, is a Safeway grocery less than a mile west. On Aug. 22, while Ahmad was selling regulargas at $2.339 per gallon for cash purchases and $2.399 per gallon for credit card purchases, Safeway was offering gas at $2.16 per gallon. The average price in Catonsville, according to AAA, was $2.316.

Beth Goldberg, a spokeswoman for Safeway, said she was unable to comment on pricing strategy or practices but provided a statement: "Safeway strives to provide our customers with competitive pricing and quality service each and every day."

When Ahmad sets his price — he gets wholesale market updates daily and acts accordingly — he has to decide how to adjust and factor in his own expenses.

"I'm selling you convenience. You're in and out in less than five minutes," he said. "You have to pay the price for that."

State law prohibits retailers to sell fuel below the wholesale cost. He tries to avoid selling at market price, as he believes it creates competition that will do more harm than good.

"Everybody loses if you sell at market price," he said. "It's a capital market, everybody needs to make profit."

But in the minds of some customers, it's what they see on the street, not loyalty to a specific business, that will dictate where they refuel.

Dennis Morea, a 73-year-old retired car salesman from Baltimore City, said he frequently checks prices as he travels. He filled up the tank of his Jeep at the Halethorpe U.S. Gas before going to the Home Depot down the street.

"It all comes out of the same hole in the ground," he said. "Right now, this is the cheapest."

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